Retailers Expect Newport to Gain Share

UBS-CSP Tobacco Survey finds retailers consider Newport brand to be healthier than in the past

NEW YORK -- In the most recent UBS-CSP Tobacco Survey, Lorillard Inc. for the first time surpassed Reynolds American Inc. as the second healthiest tobacco company, with a 7.9 out of 10 ranking (up from 6.6 in June). Reynolds wasn't far behind with a 7.3 (up from 7.1 in June), and PM USA maintained its lead at 8.5 (up from 7.2 in June).

When the retailers (representing nearly 3,300 stores) were asked which of the Big 3 brands are seeing the most negative pressure, Newport dropped from 33% in June to the lowest of the three, with 21% for September. However, retailer commentary was mixed:

"Competitors continue to erode Newport sales with new selections and packaging … Newport is overpriced."

“Newport was my first choice, but the non menthol has done exceptionally well in my market."

Newport also held a healthy second place (behind Marlboro), when the retailers were asked which of the Big 3 brands will gain the most market share in 2011. Marlboro had 47%, Newport had 39% and Camel had 14%.

Nik Modi, UBS analyst, said in his own report on the survey that “it is clear that Lorillard’s momentum seen over the past several quarters continued in the September quarter.”

During Lorillard's third-quarter earnings call on Monday, CEO Murray S. Kessler said Newport Non-Menthol continues to hold just under a 1% share, despite a recent 20% price increase that "significantly enhanced profitability on this new brand." He said that with the increase, volume has held steady, but that growth has slowed. "And I think for now, that's probably a good place to stay," Kessler said, adding that there will, however, be future initiatives. "So our expectation will be to grow it from here."

Kessler also addressed the FDA's review on menthol, which accounts for a majority of the Newport brand's sales, saying Lorillard was awaiting the peer review of the FDA's preliminary assessment of the science -- expected later this year. "When it comes out, we will respond appropriately during the comment period. Again, we believe this is just one more step in what we believe will be a very long review process."